Row of cows at farm in Shropshire

A proper exit strategy – BPS payments update

14/03/22A proper exit strategy – BPS payments update

Succession planning and retirement are both subjects that need to be addressed at some point in most farmers’ and estate owners’ lives. The fact that many farms are passed on through generations and are often family-run businesses has always made the decisions even more difficult, with both the heart and the head offering different advice.

An investment for the future

The long-awaited Lump Sum Exit Scheme for farmers in England who are looking to leave the industry will open for applications next month. The scheme will enable farmers to receive some of their Basic Payment Scheme (BPS) funds in advance. This option for landowners allows them to take a lump sum payment now, instead of diminishing returns over the next five to six years. This is in return for relinquishing their BPS entitlements and either renting out or selling most of their land, or surrendering their tenancies. In a slightly tweaked version of the proposals set out during a consultation last year, the lump sum will be based on the average BPS received by the farmer in 2019-21 – originally it was mentioned that the BPS figures would be based on the period 2018-20. This figure will be multiplied by 2.35, to calculate the final lump sum. The window for applications to be submitted begins in April and closes in September.

There are certain conditions on the payments, however. A ceiling up to a maximum payment of £100,000 is applicable – that is the equivalent to an average BPS receipt of £42,000 in the 2019-20 period. Once the payment has been received, farmers will not be able to claim any further BPS in England. To encourage new entrants, or farmers trying to expand their estates, lump sum claimants will have to transfer out their agricultural land, though they will be allowed to keep up to five hectares (plus any land they plant with trees under woodland regeneration schemes), and their farmhouse, commercial buildings and non-agricultural land.

A taxing problem

But with the announcement of the lump sum payments scheme, there has also been a note of caution sounded by industry experts. Farmers have been warned not to make any definitive succession or retirement plans, until the full implications of the scheme are defined regarding the tax implications for Income and Capital Gains tax. This will be decided in October 2022. Defra plans to legislate that the payments will be treated by HMRC as capital rather than income tax, in this regard. This should ensure more favourable tax treatment, but the final decision will clarify this. Defra has also confirmed that all BPS payments will be replaced and delinked from farmland from 2024. This means farmers won’t have to farm to receive the payments, until they have been eventually phased out altogether by 2027.    

When faced with crucial choices on these matters, it’s important to make an informed decision – it helps a great deal to talk to experts, both from the financial side, such as accountants, and land agents such as ourselves. Our experts at Forge can offer advice on how best to approach these issues, like an exit strategy, and how the lump sum payment will be wisely used and most beneficial in the long-term. In this way, farmers will be able to ensure the best outcome in their future, whilst continuing to safeguard their profit and viability in their present form. Talk to us to find out more.

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